National Oil Companies (NOCs)

8. OPEC

The Organisation of Petroleum Exporting Countries (OPEC) is a permanent intergovernmental organisation of 13 oil-exporting countries founded in 1960, which coordinates and unifies the petroleum policies of its member countries. The current members of OPEC are: Algeria, Angola, Ecuador, Gabon, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.

OPEC was formed by five founding members, Iran, Iraq, Kuwait, Saudi Arabia and Venezuela, at the Baghdad Conference on 10th to 14th September 1960. Nine other members joined between 1961 and 2016. OPEC had its headquarters in Vienna, Austria.

OPEC members hold over 80% of word crude reserves as seen in Figure 2 below.

OPEC's influence

OPEC’s main aim is the coordination and unification of the petroleum policies of Member Countries and the determination of the best means for safeguarding their interests, individually and collectively. It does this by devising ways and means of ensuring the stabilisation of prices in international oil markets with a view to eliminating harmful and unnecessary fluctuations. For this reason, OPEC has been described as a “cartel” of major oil producing developing countries which controls oil output from its member states to affect global oil markets and prices.

OPEC’s influence could be felt as far back as the 1970s and early 1980’s, during the Middle East resource nationalisation actions which excluded IOCs – though actions were by individual states, there was a degree of coordination by OPEC.

Following OPEC’s informal agreement in September 2016 to cut crude oil production (for the first time since 2008) global oil prices rose by over 5%.

The significance of OPEC to NOCs of member states is that once a deal is agreed at the OPEC level, member states are obligated to follow-through with the deal, notwithstanding their individual interests or ambitions. Sometimes, the direction could be greatly influenced by the interest of stronger more powerful members. Article 3 of the OPEC Statute recognizes the sovereign equality of Member Countries. However, media reports and analyses indicate that the OPEC output cut deal of November 2016 was primarily led by Saudi Arabia, which has ambitions of life beyond oil, and which was the only member to voluntarily agree to cut output. All other oil producing countries were forced to reduce their production because of technical, political or natural factors.

Questions of OPEC’s influence in the future have been posed, with commentators noting that: the November 2016 oil output cut deal came after 2 years of fruitless negotiations; regional rivalry, such as the one between Saudi Arabia, Iran and Iraq; and competition from U.S. Shale and non-OPEC producers.